New EU rules on tax avoidance now effective

FIRST proposed by the European Commission (EU) in 2016, a set of new tax rules aimed at eliminating most common corporate tax avoidance practices came into force on 1 January 2019.

The commission posted on its website on 30 December 2018 that the new tax rules known as Atad (anti-tax avoidance directive) would clamp down on aggressive tax planning conducted by multinational corporations.

These new rules come after Namibia was delisted as non-cooperative jurisdiction in 2018 after making sufficient commitments at a high political level to address the EU concerns.

Namibia and many other countries had been listed in 2017 for failure to cooperate or deal effectively with tax-related matters and illicit financial flows.

The implementation of Namibia’s commitments will be carefully monitored by the council working group responsible for the listing process (‘code of conduct group’).

The commission in the release said they are acting to ensure that international partners implement global anti-tax avoidance standards through their ongoing work on a list of non-cooperative tax jurisdictions.

Pierre Moscovici, commissioner for economic and financial affairs, taxation and customs, said: “The commission has fought consistently and for a long time against aggressive tax planning.”

Moscovici also said the battle is not yet won, and the adoption of the new rules marks a significant step in the fight against those who try to take advantage of loopholes in the tax systems of member states to avoid billions in taxes.

The new rules to be adopted by the member states include the taxation of profits moved to low-tax countries where the company does not have any genuine economic activity.

The limitation of net interest expenses that a company can deduct from its taxable income, the governance of hybrid mismatches, as well as ensuring that gains on assets such as intellectual property moved from member states, are taxed.

The EU initially founded by Germany, France, Italy, the Netherlands, Belgium and Luxembourg is home to more than 20 states seeking to cooperate economically.

According to the media release, the rules are built on global standards developed by the Organisation for Economic Cooperation and Development (OECD) in 2015 on base erosion and profit shifting (BEPS) and should help to prevent profits being siphoned out of the EU where they go untaxed.

On the fear discouraging investment in the region because of taxes, the commission said they are looking at possible reforms that would revise how multinationals are taxed in the EU while ensuring that a business environment which makes life easier for companies doing business across borders is maintained.